Archive for the ‘memorandum’ Category

Open contracts in Hong Kong

April 6, 2016

Fong Yin Hing v Fong Kwan Pui ([2016] HKEC 740, CFI) concerned an oral agreement by a brother to sell a flat to his sister. The sister drafted a memorandum of the terms of the agreement and the brother signed it. The brother later refused to complete and the sister sought specific performance. One aspect of the brother’s defence was that, following the Court of Final Appeal decision in Kwan Siu Man v Yaacov Ozer, there could be no contract where there was no express agreement as to the completion date. To J. rejected this interpretation of Kwan Siu Man. It is legally possible to enter into an open contract but the courts should not be too ready to find that this has occurred in the context of Hong Kong’s volatile property market. ‘In my opinion, the test is one of intention, i.e. have the parties reached a binding contract for the sale and purchase of that property at that price. If they have, then the other terms can be implied.’ ([79]). Here there was ample evidence that the parties had the necessary intention to be contractually bound.

Although no completion date was specified, the parties had agreed that completion would not take place until after their mother had died (the brother was joint tenant of the flat with the mother). It was to be implied that completion would take place at a reasonable time after the mother’s death. If completion does not take place within that time, the innocent party could issue a notice fixing a new completion date and making time of the essence ([80] referring to Behzadi v Shaftesbury Hotels Ltd and Lau Suk Ching Peggy v Ma Hing Lam). This was not void for uncertainty since it was certain that the mother would die even though the date of death could not be known ([83]).

The memorandum not only recorded the terms of the oral agreement but also the fact that the sister had paid the agreed deposit under the agreement. This did not mean that it was invalid as a memorandum. This was not a case where additional terms had been included in the memorandum casting doubt on whether it was truly intended to record the existence of an alleged oral agreement ([95]).

The oral agreement had been formed and the memorandum recorded it. The memorandum could even be considered as a written agreement. Specific performance was ordered.

Michael Lower

Memorandum: parties must be sufficiently identified

October 5, 2012

In Carr v Lynch ([1900] 1 Ch. 613) J was the tenant of a pub. The landlord, L, agreed to grant an extension of the lease and wrote a letter to him confirming the essential terms of the extension but without naming the tenant. The letter began:

‘Dear Sir, –

In consideration of you having this day paid me the sum of 50l. (fifty pounds) I hereby agree …’.

L invoked the Statute of Frauds (the same as section 3(1) of the Conveyancing and Property Ordinance) and argued that he was not bound by the agreement. He failed. Although the tenant had not been named, he was sufficiently identified as the person who had paid the fifty pounds. There was no dispute as to who had paid the money.

SMS as a written memorandum of a contract?

May 15, 2012

In Distinct Fortune Ltd v Hyndland Investment Co Ltd ([2011] 1 HKLRD 817) P agreed to buy property in Tsim Sha Tsui from D. P signed a provisional agreement and paid earnest money. D did not sign a provisional agreement but preferred to sign a formal agreement prepared by the parties’ respective solicitors. The parties’ solicitors then corresponded with each other to negotiate the terms of the formal agreement. All correspondence was ‘subject to contract’. There were two or three telephone conversations between the parties’ solicitors and between the parties’ agents in which the terms of the formal agreement were settled.  D’s representative sent P’s representative a text message to say that P would tell his solicitors to go ahead with the deal. The SMS read ‘Kim said he’ll give instruction to pig to go ahead with the deal’. Kim was a director of D and ‘pig’ was the solicitor acting for D. The next day, D’s solicitors sent out an engrossment of the formal agreement for signature by P. The engrossment was sent out under cover of a letter marked ‘subject to contract’.  P signed the formal contract and returned it to D’s solicitors with a cheque for a further deposit. D’s solicitors returned the contract and the deposit payments since D had decided against proceeding with the transaction. P sought specific performance and D countered that there was no written contract or memorandum to satisfy section 3 of the Conveyancing and Property Ordinance. P relied on the SMS message  (read together with the engrossment of the formal agreement) as the memorandum. Alternatively it argued that returning the signed formal agreement together with a cheque for the deposit amounted to part performance. D succeeded in having the action struck out on the basis that there was neither a memorandum nor part performance.

There was no memorandum. The SMS  could not simply be read together with the formal agreement to form a memorandum since the formal agreement was accompanied by a ‘subject to contract’ letter. The reference in the SMS to the intructions to be given to D’s solicitor would include the instruction to send the agreement with a ‘subject to contract’ letter. The SMS merely referred to ‘the deal’ and so there was not enough detail to forge a link with the engrossed formal agreement. Another problem was that the formal agreement was not in existence at the time of the SMS. Further, the SMS could not be a memorandum since it did not in any sense purport to be signed by D’s representative.

Nor was there part performance; the acts of submitting the signed formal agreement with a deposit were acts preparatory to a contract and not part performance of it.

The case for saying that an oral agreement had been concluded was very weak. The solicitors had been careful to label all of their letters to each other ‘subject to contract’ and to declare that their respective clients were not to be bound by anything said in the correspondence until both parties had signed a formal agreement. Properly understood, the conversations between the parties had not crossed the boundary between negotiations and a concluded contract. The court would not have struck out the action on this basis, however, since a full consideration of the facts would be necessary.

Michael Lower

The parties can agree to withdraw or one party can waive ‘subject to contract’

April 17, 2012

In Law v Jones ([1973] 2 W.L.R. 994, CA (Eng)) the terms of an initial oral agreement to sell property for GBP 6,500 were recorded in two letters written by the defendant’s (the seller’s) solicitors to the solicitors acting for the plaintiff (the buyer). This correspondence was plainly covered by the ‘subject to contract’ label attached to the first of the two letters. Then the parties agreed to a price increase. In the meeting on March 13th at which the increase was agreed, the seller told the buyer, ‘I shall not go back on my word. My word is my bond. It is yours now: carry on and make all your arrangements.’ The seller’s solicitors wrote a letter on March 17th (not marked ‘subject to contract’ it seems) confirming the price increase and asking the buyer’s solicitors to amend the price recorded in the draft contract sent to them. The seller then purported to withdraw and the buyer sought specific performance.

The English Court of Appeal upheld the decision to grant specific performance. The majority of the Court of Appeal were of the view that the buyer had waived the ‘subject to contract’ label by his clear words on March 13th. Thus, it was possible to join the March 17th letter together with the earlier letters (now shorn of their ‘subject to contract’ status) to create a sufficient memorandum for the purposes of section 40 of the Law of Property Act 1925 (in the same terms as the current section 3(1) of Hong Kong’s Conveyancing and Property Ordinance but repealed in England and Wales).

Cohen v Nessdale had already made the point that the parties can expressly or impliedly agree to end the operation of ‘subject to contract’ so the idea that it can be waived is not surprising. Here, however, the buyer was relying on correspondence that had been labelled ‘subject to contract’ when written to provide the memorandum. The correspondence recorded the terms under discussion but, far from pointing to the existence of a contract, denied that a contract existed. Law v Jones therefore seems to rest on the proposition that a memorandum need only record the relevant terms and need not point to the existence of a contract. An alternative viewpoint is that the final letter, which was not subject to contract’ referred to the earlier correspondence for convenience (to avoid repetition) but pronounced them anew in a contractually binding way.

It may have been better if the court had been invited to look at the case as being one of estoppel by representation (akin to Walton’s Stores (Interstate) Ltd v Maher). The words used on March 13th seem to be a much stronger representation than that made in Walton’s Stores. Since the case was not looked at in this light the question of detrimental reliance was not discussed.

Russell L.J. (dissenting) was very anxious to preserve the use of  ‘subject to contract’ as a way of creating a safe haven in which negotiations can be conducted without fear of inadvertently creating a binding contract (at 120 – 121). In this sense, Law v Jones should be read in the light of Tiverton Estates Ltd v Wearwell Ltd).

It is unlikely that a Hong Kong court would have found that the oral discussions gave rise to a contract since it would be an ‘open’ contract (ie with no express completion date). In Kwan Sin Man Joshua v Yaacov Ozer it was held that failure to agree on a completion date in Hong Kong was a strong indicator that there was no intention to create legal relations.

Party seeking to enforce a contract can waive an orally agreed term that is to his advantage

March 12, 2011

Where there is a sufficient memorandum of a contract for the sale of land but the defendant alleges the existence of some special term not covered by the memorandum, the plaintiff can waive that term if it is a benefit to him and a obligation on the defendant.

In North v Loomes ([1919] 1 Ch 378) there was an oral agreement for the sale of land. The seller gave the buyer a signed receipt that specified all of the essential terms. The buyer’s solicitor wrote back to say that there was no need for a draft agreement as the receipt was sufficient. There had also been an agreement that the buyer would pay the seller’s legal costs but this was not mentioned in the receipt or the letter. The seller brought proceedings for specific performance and, among other things, the buyer alleged that there was no memorandum because of the failure to mention costs in the written documents. The judge referred to previous authorities to the effect that the seller could overcome this problem if he chose not to enforce the term as to costs. He could waive this term since it was to his advantage.

The buyer / defendant also alleged that his solicitor did not have authority to enter into a contract for his client and so could not sign a memorandum on his behalf. This was rejected on the basis that here the solicitor had been told to complete an agreement that he had been told was already in place he had authority to deal with the necessary formalities.

The likelihood of an ‘open contract’ in Hong Kong

January 13, 2011

It is open to the parties to a contract for the sale and purchase of land to intend to enter into legal relations on the basis of oral agreement as to parties, property and price. The courts in modern Hong Kong will be hesitant about finding that they had an intention to contract when they have not agreed on the completion date. A document that contains significant terms in addition to those agreed on in an oral contract is not a memorandum for the purposes of CPO s.3(1).

In Kwan Sin Man Joshua v Yaacov Ozer ([1999] 1 HKLRD 216, CFA) the plaintiff was tenant of the defendant’s apartment. One day they met casually and agreed the price for the sale of the property by the defendant to the plaintiff. The plaintiff sought specific performance of the agreement. The CFA held that the failure to agree on a completion date was a strong indicator that they were still negotiating and had not yet formed an intention to enter into a contractual relationship on the terms discussed. In modern Hong Kong the completion date was a matter of importance and parties rarely failed to reach agreement on it if they truly intended to enter into a contract.

The plaintiff sought to rely on correspondence between solicitors to provide the memorandum for the purposes of  CPO s.3(1). The relevant correspondence, however, referred to additional (fresh) terms beyond those covered by the alleged oral contract. It could not, therefore, be a memorandum.

Two documents referring to the same contract can be read together

January 12, 2011

Two documents referring to the same contract can be read together to form a memorandum to satisfy CPO s.3(1).

In Chu Kim-Leung v Wong Suk-Yee ([1973] HKLR 102, SC) there was an oral agreement for the sale and purchase of an apartment. The question was whether a receipt for the deposit and a document giving the seller’s instructions concerning the sale could be read together to form a memorandum. Together they contained all of the necessary details and they were both signed by an authorised agent. Cons J held that two documents can be read together to form a memorandum when each refers to the same contract.

When parol evidence can be used to link two documents to form a CPO s.3 memorandum

January 11, 2011

A document signed by or on behalf of the party to be charged can be linked to another document to form a memorandum satisfying CPO s.3(1) where the signed document contains an express or implicit reference to some other document or transaction. When this condition is satisfied, parol evidence can be introduced to identify the other document or explain the other transaction.

In Elias v George Sahely & Co (Barbados) Ltd ([1983] 1 AC 646, PC) the plaintiff and the defendant had completed an oral agreement for the sale and purchase of property. The purchaser’s attorney wrote to the seller’s attorney confirming the oral agreement and setting out its terms. Enclosed with the letter was a cheque for the 10% deposit. The purchaser’s attorney asked for a receipt. The seller’s attorney wrote back with a receipt for the cheque. This confirmed that the money was a deposit for the property ‘agreed to be sold’. The seller then refused to complete the transaction and pleaded the lack of a written memorandum. The Privy Council allowed parol evidence to be adduced that linked the signed receipt with the letter containing the terms of the agreement. It ordered specific performance.

Lord Scarman held that the modern law on linking two documents together in this way had been correctly stated by Jenkins LJ in Timmins v Moreland Street Property Co Ltd. A document signed by or on behalf of the party to be charged can be linked to another document to form a memorandum satisfying CPO s.3(1) where the signed document contains an express or implicit reference to some other document or transaction. When this condition is satisfied, parol evidence can be introduced to identify the other document or explain the other transaction.

Defendant’s letter to own bankers as CPO s.3 memorandum

January 10, 2011

A letter to a third party by the defendant in an action for breach of contract could be a sufficient memorandum for CPO s.3(1). Damages for breach of an agreement for lease are the difference between the agreed rental and that obtainable on the open market. Where part performance is relied on, the court can grant specific performance but not damages (unless in lieu of specific performance).

In Chan Yat v Fung Keong Rubber Manufactory Ltd ([1967] HKLR 364) the plaintiff and defendant had orally agreed that the plaintiff would grant the defendant a lease of a factory. They had agreed the property, the rental, the term and the commencement date. The defendant then sought to back out of the transaction. A letter by the defendant to its own bankers setting out the agreed terms was a sufficient memorandum. Damages were awarded to cover the difference between the agreed rental and that obtainable on the open market. Obiter Pickering J stated that had the plaintiff succeeded on the basis of part performance (also a real possibility on the facts) then the plaintiff would only be entitled to specific performance or (at the court’s discretion) damages in lieu thereof. The plaintiff relying on part performance does not have an election between specific performance or damages. The judgment also contains interesting observations on the question of whether a solicitor’s letter referring to a draft lease that accompanies it could amount to a memorandum. Pickering J thought that, on the right facts. it could do so.

Reading two documents together to form a memorandum satisfying CPO, s.3

September 24, 2010

Section 3 of the Conveyancing and Property Ordinance requires that land contracts either be in writing or that there be a written memorandum of the terms of a contract that was concluded orally. The contract or memorandum has to be signed by ‘the party to be charged’ (the party trying to escape from performance of the contract).

It is permissible to read two documents together in order to produce a memorandum satisfying section 3. So, in Timmins v Moreland Street Property Co Ltd ([1958] Ch 110) a buyer and seller orally agreed terms for the sale of land in London. A director of the buyer gave the seller a signed cheque for the agreed deposit. The seller then gave him a receipt that identified the parties, the property and the price and made it clear that a contract had been concluded. The buyer wanted to escape from the contract and the seller sought damages for the repudiation of the contract.

One of the buyer’s defences was that there was not a memorandum to satisfy the (now repealed) English equivalent of section 3 of the Conveyancing and Property Ordinance. The receipt was not signed by the buyer. The seller contended that it was possible to read the cheque (signed on behalf of the buyer) together with the receipt.

The buyer’s defence was successful. The English Court of Appeal reiterated the requirements to be met before two documents can be read together to form a memorandum. Jenkins LJ suggested that the two documents must be ‘so manifestly connected without the aid of oral evidence as to justify their being read together.’ (at 129).

This was not so in the present case:

‘But before a document signed by the party to be charged can be laid alongside another document to see if between them they constitute a sufficient memorandum, there must, I conceive, be found in the document signed by the party to be charged some reference to some other document or transaction.’ (at 130)

The cheque contained no reference to the receipt and so they could not be read together.

Michael Lower